Apple hits critics with record iPhone sales

In this Friday, Sept. 20, 2013 photo, a sales person pulls out an iPhone 5s for a customer during the opening day of sales of the iPhone 5s and iPhone 5C, in Hialeah, Fla. Apple says demand is exceeding supply. (Alan Diaz, AP Photo)

has been hounded by skeptics. On Monday -- for one day at least -- the electronics giant silenced the criticism.

The Cupertino company announced record first-weekend iPhones sales -- more than 9 million -- mass adoption of the latest update of its handheld operating system and sizable early interest in its new Internet radio service. What’s more, the company said its revenue and gross margins -- a key indicator of its bottom-line profitability -- were going to be at the top of its previous forecasts.

“It blew a lot of people’s minds when Apple put up those kinds of numbers,” said Scott Rothbort, president of LakeView Asset Management, who owns shares of Apple in his personal and client accounts. “People pooh-poohed the demand for these new products. Clearly there was demand.”

Advertisement

Rothbort wasn’t the only investor who cheered the news. Apple’s stock was up sharply after the news Monday, closing the day up $23.23, or 5 percent, to $490.64.

Sales in the first three days for the iPhone 5c and 5s easily topped the iPhone 5, which sold 5 million in its first three days of sales last year.

Apple didn’t break out sales of the individual models, but in a news release, CEO Tim Cook said Apple sold out of its initial supply of the iPhone 5s, its new flagship smartphone. Demand for that phone continues to exceed supply, but the company is restocking stores on an ongoing basis, Apple said. “The demand for the new iPhones has been incredible,” Cook said in the statement.

The sales numbers were a sharp retort to worries sounded recently on Wall Street and elsewhere. Apple’s stock, which was already well off the highs it set last year, plunged the day it announced the new iPhones amid renewed doubts about its strategy after it failed to offer a truly low-cost phone and instead offered two models that were very similar to last year’s iPhone 5. The iPhone 5s looks much the same as the iPhone 5, with the same size screen but a faster chip and the iPhone 5c is basically the iPhone 5 in a brightly colored plastic case.

The company’s shares plunged again early last week after it broke with past practice and declined to release the number of pre-orders for the iPhone 5c, which some analysts took as an indicator of poor sales.

While it’s still early, it looks like the company is proving its critics wrong, said Carolina Milanesi, an analyst who covers the smartphone industry for research firm Gartner.

“At the end of the day what it validates is that they’ve done the right thing in looking after (profit) margins,” she said.

To be sure, this year’s iPhone sales figures aren’t directly comparable to last year’s, because Apple last year offered only one new model, not two like this year. Also, at launch this year, Apple offered the new phones in two more markets than last year -- Puerto Rico and China -- and through at least one new carrier, Japan’s NTT DoCoMo.

“Every time you launch a new market or attach yourself to another carrier, you’re going to see that boost,” said Ramon Llamas, a manager in the mobile phone practice for research firm IDC.

In addition to the boffo sales numbers, Apple also announced that more than 200 million users have already downloaded and installed iOS 7, the new update to the company’s handheld operating system that was released Wednesday. That makes it Apple’s most quickly adopted update of the software, the company said.

Meanwhile, some 11 million people have tuned into iTunes Radio, Apple’s new Pandora rival, since it launched Wednesday, the company said. Pandora, which has dominated Internet radio to date, had about 72 million active users last month.

Apple said it expects revenue for its fiscal fourth quarter to be near the top of the $34 billion to $37 billion range it previously provided. It said its gross margins, the portion of revenue left over after accounting for the direct costs of making or providing goods, should be at the high end of its 36 percent to 37 percent range.

Still, for as much as Apple’s fans might like to cheer the good news, analysts cautioned not to read too much into the numbers. The first weekend sales don’t necessarily imply that strong demand will continue for the rest of the year or into next.

“I would take the first-weekend sales with a pinch of salt,” Milanesi said.

And Apple still has plenty of other challenges. Revenue from sales of computers and iPad tablets, its two other major product lines, fell last quarter. And the iPhone has been losing market share globally to devices running

Google’s

Android software in part because of the many low-cost phones available running Android and in part because Apple doesn’t offer an iPhone with a screen as large as those on its chief Android rivals.